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📝 Upside Surprise In CPI Could Tilt BoC to A 75Bps Hike: BMO

Next week's attention will focus squarely on Wednesday's Canadian CPI and Monday's Bank of Canada Business Outlook Survey. These two key reports will set the table for the Bank's October 26 rate decision. We look for a 50 bp hike at that meeting, but added any high-side surprise in the CPI/BOS could "easily tilt" that decision to 75 bps.

The Canadian dollar complicates the Canadian inflation outlook -- noting the loonie is now down more than 10% from a year ago, its sharpest yearly drop in almost seven years. Lower Canadian dollar rates will almost instantaneously translate into higher food and energy prices, and will also seep into a wide variety of other imported costs. Still, we expect CPI to ease in next week's report to below 7% on lower gasoline prices, while they also look for some further retreat in core inflation.

The biggest drivers of U.S. core CPI -- OER and hospital fees -- are non-factors in Canada's CPI. Canadian core inflation will appear to be going in the opposite direction of the still-rising U.S. trend, at least for now.

- BMO



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